'500,000' British jobs in danger

MORE than half a million Britons could lose their jobs over the next three years as the economy plunges towards a potential recession, experts have warned.

In a grim General Election day forecast, they said the new Government could have to deal with huge numbers of shop and factory employees being forced out of work.

Falling house prices and a slump in High Street sales are likely to drive the downturn, with families and businesses hit hard.

Added to this are the threats of imminent tax rises and a hike in interest rates - possibly as soon as next week. The disturbing warning was issued by investment bank ABN Amro.

Its chief UK economist, James Carrick, said 500,000 jobs in retail and manufacturing could be shed by 2008. The final toll may climb to 650,000 if the major stores cut staff heavily. The prediction came as computers giant IBM said it was axing between 10,000 and 13,000 employees worldwide. As many as 2,500 UK posts could go, commentators said.

The IBM setback is the latest in a series of job cuts hitting Britain's beleaguered businesses. The collapse of MG Rover has claimed 5,500 jobs at its Longbridge plant and threatens to hit a further 15,000 working for its suppliers and dealers.

Around 2,200 jobs at Marconi are facing the axe, and chinaware group Waterford Wedgewood has announced 1,800 cuts, including 600 in the UK. Union leaders said Britain was a soft target for job losses as employment laws make it cheaper to fire workers here than elsewhere in Europe.

The ABN Amro report warned that falling house prices, combined with record levels of household debt, will cause a massive High Street slowdown. This will force retailers and manufacturers to cut jobs as profits plunge.

Next year, the economy will have its worst 12 months since 1992, Carrick said. During that year, the country slipped into recession and was ejected from the European Exchange Rate Mechanism.

'There is a chance we could suffer a recession in 2006,' Carrick said. 'But if that looked like happening, the Bank of England would probably do something radical – like cutting interest rates by a full percentage point, perhaps in one fell swoop.'

Since being granted independence in 1997, the Bank has shied away from moving interest rates dramatically. Instead, it has preferred to move them by quarter percentage points. But if the worst fears come true, and High Street spending continues to dip, the Bank may have to slash borrowing costs to prop up the economy.

In the immediate future, however, many economists expect the Bank to raise rates to 5% - perhaps as soon as its next meeting on Monday. If the Government also raises taxes to shore up its finances, ABN Amro said even more jobs could be in danger. The experts forecast that house prices will fall by 10% over the next three years in another blow to hard-working families.

Higher interest rates are already hitting the High Street, with the CBI saying this week that sales are now falling at their fastest rate since 1992. Several major chains, including Marks & Spencer and Boots have warned that poor trading conditions may hit their profits.

The increasingly doleful state of the economy will dominate politics throughout this new political period. About a million manufacturing jobs were shed in Labour's first two terms and the CBI has warned that a further 40,000 will be lost from the sector in the first half of the year.

A survey also showed yesterday that conditions for service businesses - such as law or hairdressing - are at their worst for two years. The Chartered Institute of Purchasing and Supply said companies were increasingly uncertain about the economy's prospects.

Labour has managed to keep employment levels high by taking on more State workers, economists said. The extra 900,000 public sector jobs created since 1997 have helped to keep the official unemployment rate down to 4.8%. Otherwise, the level would be 7.7%.